Best Positioned Internet Large Caps

Goldman Sachs

OUR SIXTH ANNUAL SURVEY of Internet user behavior in the U.S., and our analysis of online activity globally, highlight several key themes.

1) Maturing broadband penetration means that desktop Internet-usage growth is decelerating in developed markets. Sustaining growth may require differentiated initiatives with upfront-cost implications, such as Amazon.com's (ticker: AMZN) Prime shipping service (surveyed Prime users allocate about twice as much of their online spending as Amazon as nonusers [of Prime]).

2) Mobile Internet usage accounts for 10%-plus of e-commerce, search, and social network activity in Japan. Our survey, and the popularity of [Apple's (AAPL)] iPhone Internet usage in the U.S., suggest that consumers globally want to access Web applications via mobile devices, and that flat-fee data and user interfaces matter more than 3G networks in enabling them to do so.

3) The largest U.S. Internet companies now capture close to half their revenue from Europe and Japan. Broadly speaking, emerging (e.g., Russia) and Asian (e.g., Korea) markets host stronger incumbents than European markets, and market capitalizations are relatively even in areas such as travel (Ctrip.com International (CTRP), Priceline.com (PCLN), Expedia (EXPE)) and social networks (Tencent [of China], Mixi [of Japan], MySpace [owned by News Corp. (NWSA)]).

We see Amazon, eBay (EBAY) and Google (GOOG) as the best positioned large-cap companies within our space due to: Amazon's proprietary distribution and pent-up revenue-growth potential; eBay's network of users and success in Payments; and Google's positioning within the key search and video gateways for desktop and mobile users.

Mid-cap companies poised to sustain consistent and rapid growth owing to vertical leadership positions include Baidu.com (BIDU), Ctrip, GSI Commerce (GSIC), Priceline, Tencent, and VistaPrint (VPRT).

Sigma

This is a company I've been interested in for a while, and I'm finally going to buy it this week. They make semiconductors for IPTV, HDTV, and Blu-Ray. The stock has been beaten down really badly lately, because their EPS missed analyst expectations by 3 or 4%, and then some asshole analyst made a really negative note on the company (and then his bank, Baird, went ahead and bought a bunch of shares once he made the price plummet for them- how nice of him).

But this company has outstanding growth, and it's extremely oversold and undervalued. Here's how it stacks up to its main competitor Broadcom (BRCM), which is way bigger than Sigma. Once again, I'm taking market cap minus cash (which Sigma has tons of, relative to market cap), and dividing that by revenue, profit, and net income to get 3 multiples. All numbers (except the multiples) are in millions.

SIGM

686 mc-174 cash                 

512 /   76     {37.5}       (35)     =    6.7     {13.7}      (14.6)

56% EPS growth

PE 10

ROE 44%

 

BRCM

15060 mc-2001 cash    

13059/  1032     {551}    (74.3)   =   12.7    {23.7}     (175.8)

19% EPS growth

PE 69

ROE 8%

ACH- aluminum

Henry mentioned ACH to me (aluminum corp of china, a.k.a. chalco). I hadn't looked at it in a while, so i plugged some numbers to see how it stacked up compared to competitors. Henry was damn right-- this company is way undervalued, especially considering its huge growth rate in the past and its potential for the future.

Here's the comparison. I do market cap minus cash-on-hand, and divide that number by revenue, profit, and net income to get 3 multiples. Notice how much higher the multiples are for Alcoa (AA) than they are for ACH, even though AA has shit for growth and ACH explodes every quarter.

AA     36300   /   7375   1483     303   =   4.9    24.5     119.8

ACH    24940  /   10943      2727     1422  =  2.28     9.15       17.54

KALU    1282   /    400        91        39      =       3.2       14          32.9

RTP     197155  /     17645      17645      4059 =    11.2     11.2      48.57

BHP     261350  /    25539      9125        6017  =     10.2     28.6       43.4

From the WSJ (link):

The most compelling statistic of all? Half of all new college graduates now believe that self-employment is more secure than a full-time job. Today, 80% of the colleges and universities in the U.S. now offer courses on entrepreneurship; 60% of Gen Y business owners consider themselves to be serial entrepreneurs, according to Inc. magazine. Tellingly, 18 to 24-year-olds are starting companies at a faster rate than 35 to 44-year-olds. And 70% of today's high schoolers intend to start their own companies, according to a Gallup poll.

An upcoming wave of new workers in our society will never work for an established company if they can help it. To them, having a traditional job is one of the biggest career failures they can imagine.

I don't necessarily agree with one hundred percent of the article, but it does seem to reflect a notion that I've had for a long time along with a lot of you guys.  I don't want to perpetuate any kind of bullshit fantasy that doing it on your own will be in any way easier than getting a job and punching the clock.  It won't.  But if done right, I believe it will ultimately be far more rewarding monetarily and for each of us as individuals.  

Heebner bought 2 million shares of ach

another reason to ride this ridiculously undervalued stock

Investing foreign?

Risk? please. pick the right countries. hint hint: brazil

Auditing Sucks!

Well, if you guys didn't know already, my future profession sucks. Besides the comparison to the recent referee scandal in the sense that you don't get noticed unless you do something wrong (public accounting firms are the first ones to get sued every time a company is in trouble), diversifying and owning a lot of stocks impedes an auditor's career because you cannot own a single share of a company that you are auditing. The reason for this is that auditor's are exposed to proprietary information that would make insider trading possible and bypass "auditor independence." Although it is granted that I will never ever audit as many companies as I could possibly own stock in, you never want to decline an assignment based on the fact that you own some equity in the company. Billable hours are becoming more hard to come by in the wake of a possible economic recession. Anyways, the main reason I joined this blog was my agreement with Henry that international companies who serve the middle-income consumer is where the money is at, and most people are either too scared of the "risk" of foreign stocks or have a severe lack of knowledge of international businesses to take any action on this trend. Since I most likely will not be auditing overseas in the near future due to my embarrassing inability to speak any foreign languages that include Chinese, international stocks are near to my heart. I appreciate your suggestions Herng, and I welcome anyone else's advice on any favorable international prospects.

research in motion....

Just signed a contract with the biggest telecommunication company in Korea, SK telecom. RIMM just might be the buy high sell higher growth stock. i have to do a little more research though

analysts are silly

so i have a story to share...
I have a lot of money INVESTED in a Chinese travel agency company ctrip.com(ticker ctrp) I have been bullish on ctrp since February. I invested in the company when the price per share was in the low 50s. Ever since it has climbed up to the low 70s. The earnings report came out on May 14th and it blew the analysts' estimation. I was of course happy and i was just waiting for the next day for it to rocket. So i woke up when the market opened and logged on to my account and guess what, it tanked nearly 10%. At first, my thought was how can this be, it just didn't make any sense especially with an incredible earnings report. I took some time to research on this matter and i found out that a couple of analysts downgraded the stock from buy to a neutral because of the weak 2q guidance due to the earthquake. i couldnt help but smile and buy more shares. Analysts are so silly, they only think short term. Sure ctrp might face arduous times but it is all about the big picture my friends. ctrp is truly a hidden gem and if u think long, nothing will go wrong. Well, i guess after all this is just my opinion. Ahhh heck if i am wrong i am wrong, its not like i ever fear of being a contrarian.

P.S.: i was checking the volume change of ctrp on ibd and guess what its in the positives.
Hint hint: Market control?

Where to open up a portfolio

Can someone suggest a good place for me to open up a new portfolio? I've been investing (terribly) in long term positions at Vanguard because thats where my company opened up our retirement accounts at. However, the transaction fees for stocks at that site are ridiculous. Not gonna be day trading or anything like that, just looking to invest in some good long term options (probably mostly based on Herng's advice and discussion on this blog since I obviously don't know what I'm doing seeing that I'm $700 down right now with Apple, EMC, and GS which is actually a lot better than it was before).

sorry guys

i have been partying too hard the past two weeks but my mind is back on track now i promise.

so....

middle income consumer industries of Brazil, Russia, India, China will be the "next thing" in the market, especially in Brazil. A lot of you guys might have read the article on the Wall Street Journal yesterday about basically the exact same thing i am about to talk about. I can't emphasize anymore how crazy of a country Brazil is. The first time i mentioned this was around a week and a half ago at the lake house. The middle income consumer population will always be greater(probably by a large margin) than any other consumer group. I am definitely not over looking the solar and energy stocks but guys, our investments must go foreign, especially now. With BRIC countries booming the way they are, its just stupid not to recognize this. i need to do more research before i post the tickers but please do help research, u won't regret it.

related stocks i like so far: SDA BBA

Re: Solar

Solar Energy has a good future. My engineering economics professor asked a VP from HelioVolt (a private company based in Austin that builds solar panels) to come to our class to talk about the technology.

From what I gathered: I think the cost of the solar panels still don't justify. A lot of big companies that are trying to promote environmental awareness are buying large amounts of solar panels to stick on the buildings of their roofs. Google did this I think the past year, but it's really for PR sake for the company, not because they're actually saving energy costs.

Until the prices fall on solar panels, (I think the representative from HelioVolt said they charged 4-5 dollars per kilowatt-hour, but are trying to reach 15 cents per kilowatt-hour of electricity by 2010) the common consumer won't want to buy solar panels for their roofs, since they wouldn't be saving money.

The problem with solar technology is that it's not efficient (approximately 12% conversion rate, see below in the parts of my solar lab). PhotoVoltaics (PV) is still a costly material. Until someone in solid state research finds a p-n substrate that can really be efficient, I think it'll take awhile for the common consumer to really start buying up solar stuff. This might be soon though, since companies are pouring a lot of capital into this type of research.

Also, HelioVolt isn't the OEM for the solar panels. They just put the parts together and sell it on the market, like Dell or Apple, but with solar panels. That might be something you want to look for in investing in solar. A lot of investments are being made in solar energy. HelioVolt raised a lot of their money through various PE firms, who also think it's a good area to invest in.

Thoughts?

solar

we should research some solar company stocks together.

i've been looking at

CSIQ

LDK

SOL

TSL

what do you guys think?

Apologizing for everyone

I think everyone's been pretty busy lately (finals, partying, etc...) since it's the end of the semester. We should all get this up and running again soon. We might be too lazy to do anything, but the markets aren't. 

For me, I'm about to open up a portfolio in the next few weeks with my sign on bonus money. I'm open to suggestions.

don't know if i have the power or not, but someone add my brother to blog. he's interested. albyman32@hotmail.com i think.

good posts so far by the way.

Microsoft decides to not aquire Yahoo

Might want to sell off some Yahoo shares, and buy some Google...


I like your list Herng, you're the next Warren Buffet, so it is your list now.

TSM should be pretty good. My dad's worked with them extensively. They're only a fab, which means they only manufactor wafers (semiconductor crystals for integrated circuits). They don't do design. TI and a lot of other semiconductor companies, outsource their design to TSM to manufactor. They have one real direct competitor, UMC, but they're slowly on the decline since they don't have the technology or skill to manufactor the wafers. Their yield for their products is not as good as TSMC. Also, Terry Wei's dad is on the board for TSM. Check it. Right now, I think they'll be good, since they produce a valuable commodity for a lower price tha in the US, but in 10 years when the technology in China comes up, semiconductor companies are going to want to outsource wafer manufactoring there.

buffets picks

interesting old article i read about what buffet would buy. i saved the list but i cant find the link so here it is.
3M (MMM)
Alcon (ACL)
Altera (ALTR)
Altria Group (MO)
Aluminum Corp. of China (ACH)
America Movil (AMX)
Apollo Group (APOL)
Apple (AAPL)
Aracruz Celulose (ARA)
Autodesk (ADSK)
Bard (C.R.) (BCR)
Becton Dickinson (BDX)
BG Group (BRGYY)
British American Tobacco (BTI)
Brown-Forman (BFB)
China Mobile (CHL)
Cisco Systems (CSCO)
Coach (COH)
Coca-Cola (KO)
Diageo (DEO)
Equifax (EFX)
Franklin Resources (BEN)
Freeport-McMoRan Copper (FCX)
Garmin(GRMN)
GlaxoSmithKline (GSK)
Grupo Televisa (TV)
Infosys Technologies (INFY)
Intl. Game Technology (IGT)
Johnson & Johnson (JNJ)
Microsoft (MSFT)
Mobile Telesystems (MBT)
National Semiconductor (NSM)
Novo-Nordisk (NVO)
Occidental Petroleum (OXY)
Oracle (ORCL)
Overseas Shipholding Group (OSG)
Paychex (PAYX)
PepsiCo (PEP)
Philippine Long Distance (PHI)
Portugal Telecom (PT)
Price (T. Rowe) Group (TROW)
Qualcomm (QCOM)
Qwest Communications (Q)
Rio Tinto Group (RTP)
Roche Holdings (RHHBY)
Rockwell Automation (ROK)
SAP (SAP)
Sasol (SSL)
Schlumberger (SLB)
Sigma-Aldrich (SIAL)
Stryker (SYK)
Swisscom (SCMWY)
Taiwan Semiconductor (TSM)
TD AmeriTrade (AMTD)
Telefonica (TEF)
Telefonos De Mexico (TMX)
Turkcell (TKC)
Vimpel Communications (VIP)
Votorantim Celulose (VCP)
Wipro (WIT)

motley fool's "hidden gems"

correction

barrons- username:herngtsui pw: password

research tools

barrons- herngtsui@gmail.com pw:password
IBD- herngtsui@gmail.com pw: password

i will hardcore post starting nxt week

so busy this weekend....

lewis' watch list

SIGM- chips for blue-ray, HDTV- good growth rate, no debt, tons of cash, stupidly low multiple, oversold

IMMR- haptic touch screen tech- over 700 patents, contracts w/ samsung and nokia, perhaps iphone soon. niche- makes you feel like you're really pressing a button.

CSIQ- solar, undervalued company relative to industry, good growth

SNEN, or snen.ob- chinese compressed natural gas containers and facilities. risky play, but excellent growth prospect. 1/8th of market cap=cash on hand as of december

FDP- did somebody say fruit?

AMED- in-home medical care for the oldies

OII- deepsea oil tech

DIOD and CREE- diodes

BOLT

Wall Street Journal Subscription

Username: samueltarng

Password: password

I think my subscription is ending soon though...

iphone

Story from Business Week about the advances of the iphone in the corporate world, since Herng predicts that it will eventually overtake RIM's Blackberry...

First Post

Welcome guys:

This is finally up and running. Just post stuff you find interesting and some commentary behind it. Try writing labels on the bottom of each post so it's easy to find relevant posts. Once everyone joins, I'm going to make the blog private.